Building an Economy that Works for Everyone

Shift to defined contribution plans decreases retirement security for workers

From Public Pensions in Washington State:

Public Pensions in Washington State

Public Pensions in Washington State

As of 2008, 31% of all private sector workers participated in a defined contribution (401k-style) retirement plan at their workplace, 3% in pension plans and 12% were enrolled in both. 54% of all private sector workers were not covered under a workplace retirement plan.

Pensions guarantee workers a retirement benefit calculated from work history and wages. The employer pays into the retirement fund, and retains the fiscal responsibility to insure those funds are secure – offering economic security and certainty to retirees.

In contrast, defined contribution plans are often funded primarily by the employee, sometimes with an employer match. The employee, not the employer, is responsible for managing the money in these accounts. But these accounts are risky – the typical portfolio lost one-third of its value in the stock market crash of 2008, and has not yet recovered the value it held in 2003.

The switch to defined contribution plans, the shrinking of pension benefits, and the majority of private sector workers left outside of any plans for retirement savings are part of a great shift undermining a middle class quality of life, diminishing corporate social responsibility, and increasing corporate profits.

While workers witnessed diminishing pensions, corporate profits enjoyed their best year ever in 2010, growing 37% to $1.24 trillion, with the financial services industry taking $367 billion of this.

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